How Payments Work in Co-Management Arrangements

“Co-management models are often seen as the alternative when you can’t do a joint venture,” said Nicholas Newsad, senior associate at HealthCare Appraisers, during an Oct. 24 session at the 20th Annual Ambulatory Surgery Centers Conference in Chicago. “It is usually an agreement between a hospital and a group of physicians, often when the hospital buys out the physicians and keeps them engaged with a co-management arrangement.”

The purpose of a co-management relationship is to recognize and appropriately reward participants for developing, managing and improving the quality and efficiency of a particular hospital service line. The arrangement may include one or more physicians, medical groups or faculty practice plans, or a joint-venture entity owned entirely or in part by participating physicians or medical groups.

There are typically two levels of payment under co-management arrangements, explained Mr. Newsad: a base fee, including compensation for service line development, management and oversight, and a bonus fee, paid when predetermined metrics are met. These metrics are determined against the existing performance baseline — “For example, you’ll look at how many surgeries start on time and then you’ll have your baseline and can make a target,” said Mr. Newsad. “Then after the target is achieved, you’ll have a new baseline.” He noted targets can also be maintenance; a surgery group with a near-zero infection rate could receive a bonus fee for keeping that rate.

Under a co-management model, physician compensation is often higher than what it would be under other models. “You’d expect the higher physician pay because the performance metrics mean there’s more of a reward for a higher level of service,” said Mr. Newsad.

The higher compensation comes with more work on the part of the physician partners, in terms of more required documentation and a more active role in the ASC. “There’s no room to be a passive participant in a co-management model,” said Mr. Newsad. “If you’re involved, you’re going to do some work.”